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Capital Video Corp.
Taxable Year Accuracy-Related Penalty
Ending Deficiency Sec. 6662(a)
Feb. 29, 1996 $116,950 $23,390
Kenneth Guarino
Accuracy-Related Penalty
Year Deficiency Sec. 6662(a)
1996 $312,874 $34,515
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
After concessions, the primary issue for decision involves
whether petitioner Capital Video Corp. (Capital Video) may deduct
as ordinary and necessary business expenses $515,038 in legal
fees paid to defend its sole shareholder, petitioner Kenneth
Guarino (Guarino), against various criminal indictments.
Background
The facts of these cases were submitted fully stipulated
under Rule 122, and the stipulated facts are so found.
At the time the petitions were filed, Capital Video’s
principal place of business and Guarino’s primary residence were
located in Cranston, Rhode Island.
On February 27, 1979, Capital Video was incorporated, and
thereafter, Capital Video was engaged in the sale of pornographic
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